A week ago, it seemed almost certain: The Federal Reserve would raise its key short-term interest rate next month after holding it near zero for close to seven years. Policy makers, over the past few months, had signaled as much as the US economy continued to grow steadily and the unemployment rate continued to fall.

But that was then.

After last week's gyrations in global stock markets, largely tied to fears about China's slowing economy, the debate over whether the Fed should hike rates was renewed. Fed officials themselves seemed rattled and divided what to do.

On Monday, as stocks plunged around the world, Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, said he expected policy makers to stick to the tentative plan to raise rates in September. But a few days later, William C. Dudley, president of the Federal Reserve Bank of New York, tried to reassure markets by saying the argument for raising rates had become "less compelling."

Members of the Fed's Open Market Committee meet Sept. 16 and 17. Should they raise interest rates?

The argument for raising rates

Those who favor raising rates basically argue, "Enough already."

Unemployment has fallen to 5.3 percent and the US economy, according to the Commerce Department, grew at a healthy 3.7 percent pace in the second quarter. There's simply no need for the Fed to keep propping up the economy with such low rates.

"The Fed isn't looking at reality," said Alex J. Pollock, a resident fellow specializing in financial affairs at the American Enterprise Institute, a Washington think tank. "The rates should be raised."

Like others who favor a Fed rate increase, Pollock said Fed policies — low interest rates and the earlier "quantitative easing" program of pumping hundreds of billions of dollars into the economy by buying government and other securities — have created distortions in markets that have led to surging stock, bond, and real estate prices. Continuing easy money policies risks a new burst of inflation and creating the type of bubbles that led to the last recession.

"You look around Boston and other cities, like New York and San Francisco, and you see the effects — all the commercial construction going on, being built with cheap money," said Allen Sinai, chief executive and chief economist at Decision Economics Inc., a Boston consulting firm. "Ultimately, it leads to excesses and problems."

Sinai said he placed odds of a Fed rate hike at about 70 percent heading into last week. But he said it's "now a tossup" what the Fed will do next month.

Based on futures prices, investors see a 38 percent chance the Fed will move at the September meeting of the Open Market Committee and a 49 percent probability of a rate rise at the Oct. 27-28 meeting, according to Bloomberg.

Arguments against

Those who oppose raising rates at this point say, yes, the US economy has improved, but it's still fragile and recent world events make it vulnerable to a possible slowdown — or worse. Wages are barely growing, they say, a sign that the labor market might not be as strong as the unemployment rate suggests.

Opponents of a rate hike note that the Fed normally raises interest rates when it fears a sharp increase in inflation. But the inflation rate is now only running at about 0.3 percent a year, well below the Federal Reserve's target rate of 2 percent. Falling oil and commodity prices are easing price pressures further.

Inflation, they add, is so low that a shock that further weakens the economy could lead to deflation, the destructive cycle of falling prices and wages, and high unemployment. The Great Depression was an extreme example of deflation. More recently, Japan has struggled for the better part of the last two decades to break a cycle of deflation and anemic economic growth.

"Inflation is simply not a threat right now," said Barry Bosworth, an economist at the Brookings Institution, a Washington think tank. "I just don't see any pressing reasons why the Fed needs to raise rates now."

Brian Bethune, an economist at Tufts University, said he worries that raising interest rates now might further strengthen the US dollar, making American-produced goods more expensive overseas and hurting export sectors such as manufacturing and agriculture.

"They should absolutely not raise rates," he said.

Jay Fitzgerald can be reached at jayfitzmedia@gmail.com.